Boeing Machinists Agree to Strike

The biggest stumbling block is outsourcing, which Boeing has used to keep costs down. The union is seeking protections against further outsourcing, which is key to Boeing’s business strategy.

September 5, 2008

Even though Boeing Co. managed to avoid a strike for 48 hours that would shut down its assembly lines, the company’s labor woes are far from over.

Boeing Co.'s 27,000-member machinists' union declared it will strike at 2:01 a.m. on Saturday, September 6, as the plane maker failed to improve its contract offer after two days of emergency talks.

The union wants a 13 percent wage increase over three years instead of the 11 percent offered by the company. Labor also wants Boeing to drop proposed changes in health care coverage and pension benefits to survivors, says Scott Hamilton, an analyst at Leeham Co. in Issaquah, Washington.

The biggest potential stumbling block is outsourcing, which Boeing has used to keep costs down. The union is seeking protections against further outsourcing, which is key to Boeing’s business strategy.

More than half the work on the new 787 jetliner is done by suppliers. It’s unclear just how far the union will push the issue.

“I don’t see Boeing giving in on that,” Hamilton says. “Boeing doesn’t want a strike. But I think they’ll take a strike, if necessary.”

A strike could cost Boeing $100 million a day in lost production and cause the 787 to miss targets for first flight by the end of 2008 and first deliveries in early 2009, analysts say.

Settling a contract won’t come cheap, either. The 11 percent increase in wages over three years that Boeing had been proposing for the 27,000 machinists would cost the company about $300 million a year, estimates analyst Brian Nelson of Chicago-based Morningstar Inc. The tab is only likely to go up from there now that the two sides are back at the table.

Also, starting in late October the company has to negotiate a new contract with 22,000 members of the Society of Professional Engineering Employees in Aerospace. The union expects to deliver its proposals on wages and other issues to the company next week, a spokesman says.

“No matter what happens, it’s going to cost the company money,” Nelson says. “Their goal is to offset that with productivity increases.”

Boeing hopes to boost operating cash flow next year to $6 billion from $2.5 billion this year, in part based on productivity improvements. The company also hopes to boost the number of aircraft produced next year to 500 planes, including 25 of the 787s, from 475 to 480 planes this year.

Boosting productivity likely will be even more difficult now, given the emotional nature of the negotiations, says David Olson, professor emeritus of political science at the University of Washington in Seattle, who has studied Boeing for 40 years.

“This one isn’t going to be over with signing of the contracts,” he says. “It will take a while to rebuild morale.”

It became apparent Wednesday how frayed morale had become when union members overwhelmingly voted to strike.

“Nobody, including the union leadership, expected 87 percent on the strike vote,” Hamilton says. “It’s indicative of the underlying anger and resentment that exists.”